As Foreclosures Grow, So Does Mold

NPR reports, as huge numbers of foreclosed homes continue to work their way through the real estate pipeline, another problem is blossoming — mold.  In most homes, as residents go in and out and the seasons change, natural ventilation sucks moisture up to the attic and out through the roof. It's called the "stack effect." And in many parts of the country, it's driven by air conditioning in the summer and heat in the winter.

But no one is going in or out of most foreclosed homes — regardless of climate — and the effects can be devastating.  In some states, it's estimated that more than half of foreclosed homes have mold and mildew issues. Realtors across the country say they're seeing the problem in everything from bungalows to mansions.

Realtors say they don't think banks mean to incur thousands of dollars in mold damage just to save on monthly utility bills. But the mold problem appears largely to be a manifestation of the foreclosure crisis. Bills go unpaid, houses sit vacant, and the whole process takes much longer than anyone wants.  Charges of faulty paperwork have slowed the pace of foreclosures in recent months, and that may be exacerbating the mold problem as those houses sit and bake through the long, hot summer.

High Demand For Low Risk

A new report released by HotPads.com, a national housing search engine, shows that rental listing prices across the US climbed 7.4 percent while for sale listing prices retreated 8.8 percent since this time last year (April 2010 - April 2011).  First-quarter data shows a reversal of the broader trend -- rental prices fell 1.8 percent and sale price rose 3.5 percent -- but the report emphasized that the first-quarter trend is likely attributed to seasonal patterns in the housing market.

Further, HotPads' most recent Rent vs Buy Ratio analysis, an indicator of home price stability calculated by dividing an area's median house price by annual rent, shows that several states may be entering a 'buyers' market. The 10 states with the lowest Rent-Buy ratios, represented in the accompanying map, appear to have the most favorable conditions for buying instead of renting. 

Five Inexpensive Ways to Make Your Rentals Green

Going green was once just a good idea for being environmentally friendly. Now, it’s one of the hottest amenities. In fact, 60 percent of renters seek out environmentally-friendly homes and apartments. A green community is very attractive to the modern prospect and 17 percent of renters won’t even considering renting an apartment that isn’t green.

By going green, you could have an edge on other communities in your area that haven’t yet made the switch. Perhaps an even more impressive incentive is that 25 percent of prospects said they’d be willing to pay more for a green rental.  Earning the *green* moniker for your community is easier than you might think. Granted, choosing energy efficient appliances is a crucial step. But, if you’re not ready to make the investment in energy efficient appliances, consider these five low-cost ways to work towards earning the green title. (Source: Michelle Peters, PropertyManagementInsider)


1. Install low, flat shower heads
The average single family home uses 69.3 gallons, with showers accounting for 16.8 percent of total indoor water use. Low, flat shower heads reduce water use by an average of 50 percent for a household. This can mean hundreds of dollars of savings a year and up to 450 pounds of carbon dioxide saved.
Your cost? Less than $10.00 per shower head.


2. Install programmable thermostats
Lowering your thermostat just two degrees in the winter will save 6 percent of heating-related CO2 emissions. This eliminates 420 pounds of CO2 per year for a typical single family home (source). A simple switch on the thermostat of just a degree or two can mean over a hundred dollars in savings for the renter each year.
Your cost? $40 and up.


3. Offer recycling bins
This may seem like a no-brainer, but offering recycling options for tenants is crucial to attracting environmentally-conscious prospects, so it needs to be mentioned. By offering bins in your community you can also inadvertently encourage other tenants to recycle.
Your cost? $10 and up.


4. Install permanent air filters
Most of us regularly replace our air filters. But did you know that keeping air filters clean reduces energy consumption by 5 percent (source)? If you want to make this a marketable community asset, buy permanent air filters that can be washed and reused instead of thrown away.
Your cost? About $20 each.


5. Install motion-sensor lights
Installing motion sensor lights can reduce energy consumption by as much as 50%, which equals a huge savings on the monthly energy bill (source). Motion sensor lights can also help promote a safer living environment for tenants by adding an additional security monitor in their apartment. Any possible intruders will trigger the lights. Dimming lights save on the energy bill and conserve bulb life.
Your cost? $10-$15 each.


What steps have you taken to “green up” your properties? What kind of cost savings have you realized? Share your ideas and results in the comments below.

Home Warranty vs. Putting Money Aside

As summer approaches in Las Vegas, HVAC becomes a primary concern to all landlords. Adding central air conditioning to an existing forced-air heating system or installing a new HVAC system in a 2,000-square-foot house averages $3,500 -$4,000, and can be done by two technicians in 2-3 days, with little or no change to the existing ducting.  Keep in mind that with the new EPA laws governing renovation and work completed on a house built prior to 1978 there is a lot more cost involved in making repairs.  This cost will be most likely passed on by the contractor to the homeowner.  The cash reserve required for your rental property will vary with the style and size of the home.  A good rule of thumb is to keep at least 4x the monthly rent in a cash reserve. 


Depending on the home warranty, standard plans run about $300-$400 per year and typically cover the electrical operation of the HVAC, including the evaporative cooler.  Premium plans most often include code upgrades and mismatched systems and run between $500-$600 per year.

As you can see, it doesn't take much to have a home warranty make sense.  However, make the decision based on the age of the property and if you've already invested in rehabbing the existing systems.  Energy prices are already soaring; there's no need to throw more dollars out the window.

Tenant Payments Now

It surprises me how many property management companies and landlords rely on antiquated methods of payment from tenants.  No, I'm not referring to barter or payment in gold...I'm talking about personal checks!  Why in this age of 'instant' payment we are still using something so fraught with danger (including fraud) is beyond me.

One of the most common reasons cited is cost.  However, with numerous competitors in the marketplace, this excuse is simply not true anymore.  Companies such as TenantPlus offer electronic payment for .65% of the rent amount.  Others, like Buildium include payment services as part of an overall online services package.


I'd be interested in hearing from anyone that has had less-than-desireable results with electronic payments.  Because, as of yet, if there is a downside, I don't see it....
But I can be wrong once in awhile...just ask my wife!

Maximizing Your Rental Deductions

With tax season upon us, your non-owner-occupied rental property can be used to greatly enhance your deductions and maximize your return.  As always, consult your accountant first, preferably one familiar with real estate investments.  Remember, as a landlord you are a business owner and should treat it as such; so there are a few things you'll need to get the most benefit.


1. Keep all receipts from expenses accrued relating to rental property as well as any canceled checks from your tenant.  You'll also need a copy of your lease agreement.


2. Report any interest relating to the rental property. Interest can even be associated with credit cards used for repairs to the property and, of course, loans used for the rental, whether to purchase or repair.


3. Report any income from the rental property and any expenses accrued from the rental property on Schedule E of Form 1040. Report all expenses related to the rental property, including repairs, property taxes, depreciation and mortgage interest.  Don't forget insurance premiums too!


4. Report any fees accrued through legal services or other professionals that pertain to the rental property. Attorney fees to draw up lease agreements and expenses from any repair contractors are also tax-deductible.  Costs of any and all repairs and upgrades performed on the property are fully deductible the same year they are executed.


5. You can deduct any travel, gas, and wear and tear on your vehicle that was used as a result of responding to a tenant's request OR accrued as a result of errands relating to the rental property.

6. Finally, report any costs related to a home office used in conducting your rental business.  For example, report costs of a fax machine, computer, or other office expenses.

The bottom line is most of your real estate related expenses are deductible.  My recommendation, log ALL of your expenses and let your CPA tell you what is and is not a deduction.

Why Tenants Love to Hate Management Companies

Unfortunately property management can be a thankless job, where tenants are hyper-sensitive to mistakes and often resent the enforcer aspect of the management company’s role. Obviously, not all tenant/property manager relations are like this, but it isn’t uncommon either.  Here’s my breakdown of what makes this industry unique in garnering so much negativity.

The single biggest reason for low reviews from tenants is that the management company acts as an enforcer to uphold the interests of the landlord. This tension lies behind about 75% of the negative reviews. Granted, the complaints tend to deal with surface issues, but this enforcement dynamic in the relationship is a root cause for bad blood between tenants and management companies. In this respect, property management has something in common with professions like police officer, tax collector, prison guard, prosecutor, repo man, etc., which all have significant enforcement roles and suffer from the same negative sentiment.

This negative perception of the MC as an enforcer is amplified when it is the only frame of reference tenants have. Because much of rental housing is treated like a commodity (renters shop primarily on price) margins are low, leaving little room for the kinds of extra services that create a positive impression and relationship. This means that tenant interaction is limited to paying bills, trying to get broken things fixed, or reporting other problems, which isn’t exactly the foundation for a glowing relationship.

Together, these factors have a negative impact on both tenant AND management behavior making it easier to find fault than solutions. Constructive dialogue is quickly replaced with a willingness to jump to conclusions and demonize the actions of the other party. Once an “us against them” mentality takes hold, it isn’t long before the tenant views himself as the little guy “fighting the man” in a crusade against landlord tyranny. The flip-side is the property manager who feels totally unappreciated and is tired of getting dumped on resulting in cold or overly heavy handed in dealings with tenants.

All these emotions are amplified by the fact that people’s homes are an important part of their security causing strong reactions to any perceived threat.

Again, my goal is not to label one side as being primarily responsible. We can all recognize that there are bad tenants that don’t pay rent, as well as negligent management companies that fail in their responsibilities. My point is that the inherent dynamics of the tenant/manager relationship lend themselves to strife.

Is it fair? No, but does that really matter?

Clearly, tenants are not in a position to tell owners who they should hire, and yet their reviews can affect the reputation of the management companies and influence client perceptions.  While this can be a bitter pill to swallow, it’s imperative that you embrace the fact that you’re not in control of what is said about you online.

As consumers are empowered by review sites and social networks to share their experiences, businesses of all types are becoming acutely aware of the need for online reputation management.

Who is talking about you, what are they saying, and how should you respond?  Important items to consider.  I'll cover more on this in the future.

Facebooking Your Tenants

A great way to screen your prospective tenants is to "find" them on Facebook.  Not every person on Facebook makes their "Wall" public; however, with the ones that are, you can derive a treasure of information.  Many times, an individual will be very open with their information, such as "I just got evicted from my rental" or "We just got foreclosed and need a place FAST!"


This also works with existing tenants.  For example, a friend of mine noticed a post from one of his tenants stating that they were moving to Oregon in March.  This was a shock to the landlord because their lease is through June!


Social networking has become a public confessional for many and it can be a "non-invasive" way to discover who your tenants REALLY are.  Find 'em on social networks.  It may give your tenant a different "Face" than the one they're showing you!